Category Archives: Ecommerce

It’s good to see UK shoppers turning to their phones to shop more than the rest of the western world because UK companies will innovate faster on mobile as a result. We already produce more than our fair share of ecommerce giants and so long as the UK shopper keeps adopting new technology faster than Europeans and Americans we will most likely keep doing so.

I just saw this chart in a Morgan Stanley investor note with the subtitle eCommerce Hits it’s Stride. Firstly it’s good to see that top investment banks continue to see a lot of growth ahead in eCommerce, but more exciting is the notion that an inflection point is coming towards the end of this decade. If that’s true then growth for ecommerce businesses will peak around 2020. Company valuations are highly geared to growth, so we can expect them to peak around the same time. That makes 2015 a great time to be investing in eCommerce startups.

If “retail-as-discovery” is a problem for consumers it is an opportunity for entrepreneurs, and it’s one that we’ve invested in heavily over the last twelve months. The best examples are, perhaps, Thread and Stylect which help men discover new clothes and women discover new shoes respectively, but many of our partner companies are in the business of helping consumers discover and buy new products and services.

One of the big differences between retail-as-logistics and retail-as-discovery is that with discovery there’s a much higher trust hurdle. The consumer doesn’t know what they want in advance and so has to trust that the product is good, that the price is right, and maybe that the retailer will deliver on time and handle returns well. The trust hurdle is pushed higher by the fact that many discovery items are high value – like shoes and mens fashion.

When designing to deliver trust rather than designing to deliver logistics the user experience is more about reassurance and less about efficiency. That needs to be reflected in site design, brand values, returns policies and just about every aspect of the business. The need for efficiency in logistics doesn’t go away, at least not very often, but it moves from being prominent in the value proposition to somewhere in the background.

Getting all this right is tough. But then if it were easy, everyone would be doing it. Successful tactics include elements of human curation, striking visual design, and most importantly, a big focus on building great product.

Singles Day has just started in China. It’s a day where single people celebrate, and was selected because of the number of ‘1s’ in the date – it’s 11/11. It’s also the largest online shopping day in China and the news this morning is that Alibaba racked up $1bn of sales in the first 17mins 58s, and $2bn in the first hour.

In comparison, sales for the whole of Cyber Monday in the US last year were $2.3bn.

Back to Alibaba – $1bn of sales in 18mins is just phenomenal. Very few companies ever get to do that in a year. For further comparison, Amazon did $20bn in the three months to September 3o.

And, investors love Alibaba. The company went public in September in the largest ever tech company IPO and the share price has risen 28% since then giving the company a market cap of $296bn. That compares with Amazon’s market cap of $141bn and Google’s of $375bn. The business was founded in 1999.

At heart this is mostly a story about the size of China, but it also talks to the power of the internet as a platform for building large scale enterprises.

I knew that Zulily, which Crunchbase describes as ‘A daily deal site for mums, babies and kids’. is an amazing ecommerce success story which IPO’d last year with a valuation in the billions. A friend of mine headed up their UK operations for a while, so I also knew that they were second to none in their use of data to drive a personalised flash sales shopping service to their customers and that their scale has allowed them to deliver an amazing level of personalisation.

However, I hadn’t until now, appreciated just how amazing their growth was or known that they are one of the fastest growing retailers of all time (according to Geekwire).

As you can see from the chart below they went from a standing start in Q4 2010 to a forecast $1.1bn in net sales last quarter. Maintaining growth of that scale for that long is truly remarkable, and it’s great that Zulily have shown it can be done in a physical goods business.

Commerce is moving mobile and mobile is moving towards apps. M-commerce apps are, therefore, the way forward. We have investments in a couple (Top10 for hotels and Stylect for shoes) and I expect we will do more going forward. We are taking a serious look at another one right now.

However, maintaining user engagement can be challenging in m-commerce. Becoming part of their users’ daily routine, one of their ‘home screen apps’, if you will, is difficult because the customers of most m-commerce apps don’t purchase that often. Top10 and Stylect have lots of engaged users, but nobody is booking hotels or buying shoes every day.

Notifications are one of the most obvious tools for improving engagement, but they need to be used carefully. New research from Kahuna published on Andrew Chen’s blog found that only 12% of users engage with “ecommerce and retail” notifications, implying that up to 88% of users find them annoying. “Utility and financial services” notifications top the chart with 40% engagement, perhaps reflecting their daily usage patterns.

The trick for m-commerce apps is to use notifications sparingly and doing the work to make sure they are timely and relevant to the user. Unfortunately that means work – there’s no quick and easy way to use notifications to drive a sustained improvement in engagement.

The Kahuna research makes three recommendations:

Find the appropriate cadence: Users may not want to hear about shoes every day, but once a week might be the sweet spot. Look at the stats and see what works.

Make it personal: Don’t send the same notifications to every user. It’s much better to send users personalised sale notifications for shoes on their wish lists than to send everybody a 10% off coupon for a retailer who wants to do a blanket promotion.

Get the timing right: users engage more with notifications at times when they use the app, so figure out when that is and send notifications then. Urgent notifications are different. If a pair of shoes from my wishlist has gone on sale then I should know about it now, before they sell out. Don’t make the mistake of waking people up though (see below).

The best practice book for m-commerce is still being written. A small number of companies are making it work, e.g. Amazon and Uber, but e-tailers with less frequent purchase patterns are still figuring it out. I’m excited for Forward Partners to watch and help them do that.

Below this are some examples of well and badly executed notifications along with customer responses on social media. They are from Andrew Chen’s post. If you are involved with m-commerce you should go read it…

One of the reasons we like backing ecommerce companies is that here in the UK we spend more online that all other major countries bar Sweden and we punch above our weight when it comes to ecommerce leaders.

Kieran O’Neill, founder of our portfolio company Thread likes to quote Paul Graham saying ‘if you make something easier for people to do, they will do more of it’. At Thread Kieran is making it easier to buy fashion and as a result the majority of his customers report that they spend more on clothes after becoming Thread customers than they did before. Amazon’s ‘One click purchase’ is another great example of a service that gets people to buy more by making it easier.

Yesterday Twitter and Facebook made separate but similar announcments that customers will be able to buy stuff directly from Tweets and their Facebook newsfeeds. Here’s how Facebook described their ‘Buy button':

With this feature, people on desktop or mobile can click the “Buy” call-to-action button on ads and Page posts to purchase a product directly from a business, without leaving Facebook.

The purchase will be made using credit card and presumably shipping address data stored by Facebook. It sounds like it could be as easy as buying something on Amazon.

Twitter’s announcement was that they have acquired a company called Cardspring which has payment technologies, and they have outlined how merchants will be able to interact more with customers within Tweets, although they have stopped short of announcing a ‘Buy button’ of their own. I suspect it’s just a matter of time before they do though.

All of this is similar to a ‘buy in the page’ service offered to media companies by Lyst that allows people to buy items they are reading about without clicking to a different site. (Lyst was one of my portfolio companies when I was at DFJ.)

For me these services which take a step or two out of the process of buying stuff online represent an important evolution. Ecommerce is slated for massive growth and making it easier to buy will be one of the drivers.

Business Insider has just published a great deck showing the potential in ecommerce. We’re focused on the ecommerce ecosystem, so I guess I would say this anyway, but the opportunity is truly exciting. TL;DR ecommerce is a juggernaut already, still growing fast and with miles to go. Billions of dollars of retail are coming online for the first time each year and will do for some time to come.

These are my two favourite slides:

Sad as they are for the companies involved and the high street generally these store closures suggest very fast movement from offline to online in specific sectors. Our challenge as investors and entrepreneurs is to find the sectors where this will happen next.

I’m loving CBInsights at the moment. They keep churning out great data. The latest is this chart showing growth in eCommerce investment:

This is a good growth story. Ordinarily I would say that the 2011 peak suggests otherwise, but 2011 was the year of the Groupon clone frenzy and we can safely regard it as an anomaly. The growth in investor interest in ecommerce is driven by the growth in the underlying ecommerce market, and that underlying growth has legs, as I’ve blogged before.

In 2012-013 the UK accounted for 4% of the global total, up from 2% in 2010-2011. That means ecommerce investment here is running at around $258m per year.

Brief Bio on Me

Managing Partner at Forward Partners - on a mission to invest in the UK's best eCommerce companies.

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